Kansas City Fed Manufacturing Index in Negative Territory for the Fourth Consecutive Month in January

The Kansas City Fed manufacturing composite index was at -1 in January, up from -4 in December and -2 in November, the January Manufacturing Survey by the Federal Reserve Bank of Kansas City showed, indicating Tenth District manufacturing activity was basically flat this month. The January reading was well below a record-high 32 last March and 23 last January. “Factory growth was driven more by activity at durable goods plants in January, especially wood product, machinery, and transportation equipment manufacturing," the Kansas City Fed reported. The ISM-adjusted index calculated by Haver Analytics increased slightly to 49.7 (NSA) in January from 44.5 in December, albeit remaining below the 50 expansion-contraction dividing line for the fourth straight month. The latest reading was down from a record-high 68.9 last March and 59.0 last January.

The production index, at negative levels for four successive months, increased to -4 in January from -6 in December, but it was down from 17 last January. The new orders index improved to -8 this month from -15 in December, registering the sixth consecutive negative reading and down from 12 last January. Twenty-nine percent of respondents (NSA) reported orders gains while 35% reported declines. Remaining in positive territory, the employment index was unchanged at 4 in January but noticeably down from 21 last January. Eighteen percent of respondents (NSA) reported increases in the number of employees while 19% reported decreases. The shipments index dipped to 1 this month, the same reading as last January, after rising to 2 in December; it remained down from a record-high 43 last March.

The raw materials inventory index rebounded to 4 in January from -2 in December, but it was still down from 24 last January. The order backlog index declined to -17 this month, the sixth straight negative reading and the lowest since June 2020, from -16 in December and 21 last January. The supplier delivery times index increased minimally to -1 in January, the third successive negative reading, from -3 in December; it was well below 38 last January.

The prices received index for finished products edged up to 16 in January after declining to 15 in December; however, it was significantly down from 51 last January and a record-high 60 in August 2021. Twenty-five percent of respondents (NSA) reported higher prices received while 14% reported price declines. The prices paid index for raw materials rebounded to 20 this month from 18 in December, but it was meaningfully down from a recent-high 77 last April and 66 last January.

Expectations for future activity were generally positive in January. The expectations index for six months ahead eased to 3 this month after rising to 6 in December. The expectations indexes for employment recovered to 28 in January, the highest reading since July, from 11 in December. The expectations indexes for production (10) and shipments (7), while down this month, remained in positive territory; the expected new orders index was unchanged at 4. Expected capital expenditures held steady at 10 this month. Expectations for future raw materials prices decreased to 27 in January, the lowest level since July 2020, from 34 in December; expected finished goods prices fell further this month to 29, the lowest reading since October 2020, from 37. Moving into negative territory in January, the indexes for new orders for exports fell to -8 and finished goods inventories fell to -7; both were down from zero in December.

The latest survey was conducted for a five-day period from January 18-23, 2023 and included 96 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.